Foreclosures have prices plunging on vacation homes Up North. It's a buyers' market, but that's part of the problem. Who's buying?
This lake home on Sturgeon Lake in east central Minnesota, appraised at $400,000 in 2006 and is now priced at $339,000 and has been on the market one year. (In this Photo) Bryan Ketchmark of Majestic Pine Reality in Sturgeon Lake (right) shows the property to Tom Challeen (left) from Star Prairie, Wis.
The falling real estate market has moved Up North.
"For sale" signs are a common sight along the lakes this weekend as Minnesotans make their ritual trek to cabins or resorts for the unofficial opening weekend of summer. With few buyers for cabins and lake homes and inventory stacking up, real estate agents say prices are down 20 to 30 percent. One cabin on Big Turtle Lake just north of Grand Rapids has been reduced by more than $200,000.
"Since 2006, they've gone down, down, down," said Bill Herrick, an agent with Lake Country Properties in Outing, about 30 miles north of Brainerd. "No one out there is offering full price on anything."
The popular Brainerd lakes area has been hit hard. On its website, Up North Properties lists nearly 150 foreclosures.
With cabin season here, real estate agents say they are seeing more lookers, especially people from the Twin Cities who had always found vacation property to be out of reach financially.
"If someone is looking for a cabin, now is a terrific time. Get what you want on whatever lake you want," said Lori Longworth, an agent with Coldwell Banker in Park Rapids.
Her office had two lake homes under $200,000 a year ago. "Now, there's about 25 of them under $200,000."
The market is slower than usual, she said, but by no means dead. "People we call fence-sitters are finally falling off the fence."
Nationally, 2008 sales of vacation homes dropped 30.8 percent from the previous year, while sales of primary residences dropped 13.2 percent, according to the National Association of Realtors.
Second homes represented 9 percent of all residential transactions, down from 12 percent in 2007. Sales of second homes peaked at 40 percent of all transactions during 2005 as homeowners used the mounting equity in their primary homes to fuel purchases of vacation and investment properties.
Now, with unemployment rising and home values falling, the number of second-home owners who can't pay their mortgages is rising. In Minnesota during April, nearly 30 percent of all foreclosure notices were sent to addresses that did not match the mailing address of the property. That's up from 22 percent during May 2008, according to RealtyTrac, and just shy of the nationwide average of 30 percent.
Selling for a loss
The market was still hot when Dale Juntunen bought a cabin on Big Turtle Lake in Itasca County in July 2006. The property was being sold by an older couple, and got three offers -- all higher than the asking price -- by noon on the day it was listed.
Juntunen, a building contractor who lives in the area, bought it for $397,400, and had crews remodel it over the next winter. He says the updates -- essentially a new interior and exterior as well as a new boathouse and detached garage -- came to $100,000.
"We put it on the market that spring 2007 for $599,000, just as the market started to slide, still hoping to make a profit," he said. Juntunen, who estimates he has shelled out $100,000 in holding costs for taxes, insurance and utility bills, is now asking $394,000.
"We have to lick our wounds and move on," he said.
Agency has 1,500 listings
His real estate agent, Terry Schmitz of Edge of the Wilderness Realty, said his agency has about 1,500 listings now. "A typical year, before we got into this down market, it was 400 to 600," he said. That number includes primary homes, cabins, acreage and other listings.
"Last fall when the stock market dropped and the economy fell off the end of the earth, we just saw buyers quit showing up" for lake homes and cabins. With the current economy, "No one now needs to own that second home," he said.
Prices are down 25 to 30 percent from when the market was surging in 2004 and 2005, Schmitz said. "People can go out and look at 12 to 14 homes that they get to look at before they buy. Overpriced property just doesn't have a chance to sell because there's so much competition."
Bryan Ketchmark, owner of Majestic Pine Realty in Sturgeon Lake, Minn., said lake homes or second homes in the $300,000 to $600,000 range have dropped in value 20 to 25 percent. Seasonal cabins have seen drops of 15 to 20 percent.
One of the nearly 150 foreclosed properties -- homes, cabins and land -- listed on the Up North Properties website is an $879,000 five-bedroom home that sits on 100 feet of Rush Lake on the popular Whitefish chain near Brainerd.
Watching and waiting
Tom Challeen of Star Prairie, Wis., has been watching a cabin on Sturgeon Lake for about a year and went to look at it last weekend. It went on the market a year ago at $399,900. Now: $339,000.
"We've been watching the prices drop, drop, drop," said Challeen, a manager at a manufacturing facility in Somerset, Wis. He doesn't think the economy is going to get any worse, so he thought this might be a good time to start looking. But he's still undecided about whether to buy.
Up North owner Bill Grunewald said it's hard to watch someone give up a lake home and the memories that go with it. But on the flip side, it means an opportunity for someone else.
"It is sad, but we are seeing people coming up and saying 'We wish we would have bought years ago and now we can finally buy at these prices,'" he said.
Staff writer Jim Buchta contributed to this report. Suzanne Ziegler • 612-673-1707e